The Impending Price Battle

Last December, Bob LiVolsi the owner of Books on Board exhorted publishers to fight Amazon’s $9.99 predatory pricing. He received a standing ovation because publishers and other independent bookstores knew it could not continue to match Amazon’s lowered pricing under the current scheme. Ebook retailing, like physical book retailing, operated under the wholesale model. Publishers would sell their product to wholesalers and retailers at a discounted price, usually 40-50% off for the big publishers. Smaller, independent publishers, might be offered terms at 60% off the cover price.

On average, that meant for a hardcover, the publisher was getting around $12.50* per book and the author would be entitled to 25% off the $12.50. Amazon, in an attempt to gain market share by luring customers to its proprietary Kindle format, priced its hardcovers and trade paperbacks at $9.99. For every hardcover it sold at the $9.99 price point, Amazon was likely losing $2.50. However, for every trade paperback or mass market it sold, it was earning money. Further, not all hardcovers were priced at $9.99. Generally, only the most popular, bestselling titles received the loss leader treatment.

When Apple introduced the iPad and its intentions of getting into the digital book market with the iBookstore, publishers saw an opportunity for leverage against Amazon that they had not had in the past. Calling it the Agency model, publishers went to Amazon and informed Amazon that the wholesale model would no longer be available and that Amazon would have to agree to the Apple model of retailing. In the Apple model of retailing, the publisher sets the price and the retailer is allowed 30% off of each sale. (I don’t believe publishers are engaging in a true agency model here because I believe that if they were to do so, they would have to source the digital books themselves).

Recognizing that digital books have some value less than a physical book (or at least publishers acknowledge this to be the perception of consumers), Macmillan announced that its pricing for hardcovers would be in the $12.99 to $14.99 range. Initially, shots of the iBookstore showed pricing of the most popular books at $9.99 but more recent iBookstore screenshots show uniform pricing at $12.99 (this pricing is more consistent with what I have heard insiders indicate is on the internal pricing sheets).

The problem with the $12.99 pricing for publishers is that it is still getting far less money for each sale than it had in the past. Under the 70/30 share, publishers are getting $9.09 on each hardcover sale thus rendering the royalty share loss for an author at $.88 cent per sale.

For mass market paperback sales, publishers are going to come out ahead under the agency model. Assuming a $7.99 price point, under wholesale model, publishers were receiving around $4.00 per book. Under Apple model, the publishers could price the digital book at $5.99 and still be slightly ahead of the game. Macmillan stated that its low point for the digital editions of paperbacks would be $6.99.

For trade paperbacks, which make up a huge share of the fiction book market, the math is less favorable for publishers. Assuming a $13.99 price point, under the wholesale model, publishers were receiving close to $7.00. If they adopt a $9.99 price point for trade paperbacks, as Macmillan suggested that they would do, it’s a wash. Any price point under $9.99 will result in a proportional loss of per unit revenue.

Random House has decided that it doesn’t want to participate in the agency model, believing that selling its digital books at list price + some discount to retailers makes more financial sense than selling direct to consumers at a much reduced price, at least for the hardcovers.

My guess is that Random House believes that iPad owners will function like iPhone/iTouch users and download the Kindle App to get books from Random House which Amazon will continue to be able to sell at a greatly reduced price of $9.99 or less.

Problematically for the big 6, the Apple model requires them to place their eggs in a few, but big, baskets. Ingram, a wholesaler of digital books, announced last week that as of April 1, 2010, it would no longer be able to serve some 65 digital bookstores across the ‘net because of the Apple model that the publishers are trying to enforce. Bob LiVolsi, of Books on Board, elaborated on this in a comment at Teleread.org.

…as of Thursday afternoon, March 25, the 5 publishers still do not have all the necessary info to the distributors for cut over to new system – items such as sales tax nexus (because, under the new model, they will now require sales tax where the publisher has nexus/locations), ONIX feeds of the changed metadata that includes the new Required Ebook Pricing (REP), and rules for promotion, etc. These things require more than a few days notice to code and test for well over 100,000 titles. So we and others may not have all titles on April 1, but we'll still have over 200,000 to choose from, including thousands from our top publishers Random House, Harlequin and Samhain, none of whom are playing in this new pricing game.

Ingram would not speak to the proposed revenue splits, but publishers are indicating that the 30 percent seller’s commission under the agency model would not change when a wholesaler is involved. That means that Ingram and its clients need to agree on how to divide that 30 percent commission.

LiVolsi concludes that this will result in a number of independent digital retailers closing their doors:

BooksOnBoard will, in fact, come through this intact, but many of our peers will not. And our typical customer's choices will be diminished by significant price increases.

LiVolsi correctly gets to the heart of the consumer matter – less choice and significant price increases. In fact, Livosi says that the prices are going to increase to double the price that they are now:

If you have titles you want to buy from these publishers, the 5 publishers require prices to go up everywhere next Wednesday – in many cases, almost doubling. Some might not even be available while the publishers and our wholesalers change their systems to accommodate the change. If you know you want to buy eBooks from these publishers, you may want to buy them right away so as to get enormous savings versus what you will pay starting next Wednesday night, March 31st.

The problem for publishers is that discounting is an ingrained part of a reader’s buying experience. I doubt that many people have bought a hardcover at full price. All bestsellers are discounted some amount whether it’s 30% at Borders and Barnes and Noble or 40% or higher at Wal-mart, Costco, Sam’s, and other warehousers.

The best possible situation for the consumer is no proprietary formats and a number of retail channels to choose from. The competition would force retailers to provide increasingly better customer service. In this fixed price market, there is a loss of incentive to innovate. Further, Apple’s model of retailing actually reduces the number of retail channels because smaller channels will have to start serving its own digital books rather than obtaining them through a wholesale digital distributor in order to maximize their profits. In a true Agency model, the publisher would host and serve all the proprietary formats that are sold, cutting out the wholesaler and working directly with all the retail channels willing and able to deliver those books to the consumer. This is not likely to happen. Even Harlequin, as digitally advanced as they are, use a wholesale distributor.

What does this mean for consumers? Higher prices and fewer retail channels. Publishers gain control but at the cost of a lower margin. Is that a win? I guess time will tell. What I do think is that the publishing industry fight with Amazon and others is going to get uglier before it all shakes out. This means more buy buttons disappearing, more books becoming unavailable to readers, and higher prices which will serve to piss readers off more and more.

* These numbers are based on a $25.00 hardcover list price

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Jane Litte is the founder of Dear Author, a lawyer, and a lover of pencil skirts. She self publishes NA and contemporaries (and publishes with Berkley and Montlake) and spends her downtime reading romances and writing about them. Her TBR pile is much larger than the one shown in the picture and not as pretty.
You can reach Jane by email at jane @ dearauthor dot com

Comments

>>>What does this mean for consumers? Higher prices and fewer retail channels.

Um, no. Outside of hardcore genre readers, most Americans will look at the price and say, “Forget it! Let’s go watch some TV for 99-cents an episode on iTunes instead.”

Publishing can scheme and try to fix prices all they want. And while they fiddle, their market will continue to shrink. And they will also have to contend with indie writer-publishers who won’t try to gouge people.

I really would like to know whocan afford all these new technologies such as an Iphone and now an Ipad that will cost $500. I can assume the 10% of the population who are unemployed can’t afford this, including the book price inflation. Is there a monthly fee for the Ipad just like the use of an Iphone, which can cost almost $80 a month with all the applications?

Thanks for the post, Jane. I’ve been watching this play out with some trepidation. I am currently on a book budget. In the past, I’d buy a book I wanted regardless of price. Not so today. If the prices go up, I’ll be forced to reduce my purchases and turn to the library for my reading material.

What I want to know is the difference in the NET return for publishers between eBooks and hardcopies. An eBook that bottoms out at $6.99 when the mass market price is $7.99? That I don’t even really OWN (relative to my ownership of a paperback)?

This is incredibly frustrating, because I want to switch to eBook format, but it’s economically unfeasible already. Not only would I have to buy the reader (or continue reading on my iPhone, which is less than ideal), but I have to buy all books new. I prefer to buy books new, because I don’t like to see the author cut out of the deal, but sometimes….

I still don’t believe the iPad is going to be a wicked big deal. I don’t see it appealing to many people outside the Apple fanboi/girl sphere.

If the iPhone is a tech swiss army knife that isn’t the best at internet/book reading/game playing but fits conveniently in your pocket, the iPad is a combo tv/dvd player that’s good at neither and isn’t terribly convenient either.

If people have abstained from ebooks so far because of reader price, a $500 iPad is not going to entice them.

At the end of the day, a book is only the container for the story. You can have different packaging and price for the same story, but essentially, you’re getting the same story. The only difference between HB, TPB, and MMPB is how durable the book is.

Ebooks are pretty much the story, not the book, so there really shouldn’t be a question of having different prices for HB, TPB, or MMPB. However, technology is always changing. There’s new and different formats coming out all the time, and computer operating systems change. There’s no guarantee that the same file formats being used and supported by ereaders today will continue to be used in 5 years. So publishers and booksellers might as well price ebooks at below the price of mass markets.

Besides, I suspect that the people who look for ebooks are the genre readers, where you see a lot more books published in MMPB.

I find this all very depressing. As an overseas reader, I already have to jump though enough hoops to buy ebooks. As a reader with limited discretionary income, I simply won’t be able to justify buying if prices go up too much.

When the talk of prices doubling, are they talking about books out in paper as hardcovers or mmpb?

My main consolation is knowing that three of my favourite and auto-buy authors are with Baen.

The competition would force retailers to provide increasingly better customer service

One can dream . . . I just had a terrible exchange with the dolts at Fictionwise. Increasingly, they seem to be offering books only in ePub and their secure eReader formats. Neither of these work with my CyBook (which I have set to Mobi, cause I already own like 200 books in that format). After the latest round of “no, you can’t buy a single freaken book cause nothing is in mobi” I emailed them (note: I JUST re-upped my membership). They emailed back to say they recommended I buy in ePub or eReader! ARGH! What part of “these formats don’t work for me” and “is this going to be an ongoing thing” is so hard to understand and answer?

They got my $30, but they won’t ever get another d@mn penny from me. And this kind of crap is why it’s so hard to justify buying a reader in the first place!

@Kalen Hughes: I’m with you. I just sent FW a scathing note regarding their high and mighty prices. They wanted 15.00 for “How to Dazzle a Duke” by Claudia Dain. 12.75 for members (gee thanks). B&N, their sister site wanted 9.99 for the ebook, and Amazon, 9.99 for ebook and 5.92 for paperback.

It seems when I want a popular book, FW has it for twice the price as paper on Amazon or at least 4 or 5 dollars more than the paper version.

Yeah, that’s one of the frustrating things about ebooks, even the DRM-free ones. There are some books I want to try just out of curiosity *cough*menofaugust*cough* and I spend enough money on books I really want to read.

You know, an honest to goodness rental program for ebooks would work really well for this – pay one or two dollars and have the book for one or two days. That is a DRM scheme I could totally get behind. I may have to delve further into Kindle for PC. Maybe they have sales?

Why oh why are publishers so prejudiced against digital books? If the prices go up too much, they will force me to buy the paper one or none at all.

I am in Australia but I signed up to Books on Board as being in the US so that I can access the books that have geographical restrictions.

In Australia a standard MMP costs between $18-23, unless you get it from KMart which has a small selection but they sell them for about $13. I can buy the same book from The Book Depository for about $8 and have it delivered to my door within about 2 weeks (the only – slight – downside) with no postage cost. If I can buy the ebook for less than $8 AUD I will do so. But, my shelves are overflowing now and I prefer to buy ebooks when I can. If the prices go up to much, then the publishers will push me further back to paper books and thence to my library and used bookstores.

I agree that this new agency model (or whatever it’s called) is likely to increase piracy which means that the author misses out even further.

Why can’t publishers appreciate that a sale is a sale is a sale? grrrr.

The one factor which publishers (or distributors like Fictionwise) are failing with worst on with ebooks (since I can grit my teeth and live with the DRM for ‘disposable’ books) is charging more for an ebook than the currently available physical, undiscounted book.

That, I think above all other factors, is the one which is most annoying and most unreasonable. On par with or less than the physical book price, please!

Rather than trying to get the digital market to mimic the physical market with HB, Trade and MMPB windows, the publishers should be figuring out how to harness the used book and library markets. They currently get zero from these readers.

@MaryK: Kindle for PC usually lets you download a free sample of most books it offers. It may not always be long enough or in a useful part of the book, but on the whole I think it’s good. I’ve already purchased a few books based on samples.

Jane
This touches all the buttons that for some reason no one really wants to discuss. The Ingram agency issues is significant in that it attempts to marginalise the intermediaries on discount. This would not matter in the physical world as the resellers would simply deal direct but in a digital world this is significant. It presupposes that every publisher will be able to supple all resellers from its own repository or the wholesalers with conform.

The question is whether the resellers want to sell ebooks and if the price is effectively fixed why should they.

Publishing is a gambling business i wonder what the odds are on this bet?

I read a piece recently which highlighted for me the problem with e-books.

It’s not mine.

I am renting the rights to read a book on a device.

I don’t see books as commodities like sausages or light bulbs – which is how I think some publishers believe many readers see books. I see books as commodities like lamps and vases.

E-book readers are not virtual bookshelves. Now that ipods have been around for a while, I am realising that there are limitations – e.g. to the number of times I can transfer my iTunes library to a new computer. I don’t want that. I want my music and my books for all time.

I don’t have an e-reader. I think they are prohibitively expensive, plus the limitations on the number of machines where I can keep my copy is a deterrent. I am excited about the iPad, and think I might get one maybe next year when the bugs have been ironed out, but only if I can find a decent browsing platform…So all in all, although the idea of e-books appeals especially for my fiction reading, I don’t think I’m quite ready to bite yet.

I’m not an immediate early adopter – I’ve got a friend who had one of the first iPhones in Belgium, who has his Sony e-reader etc etc, but I am a fairly early adopter, in other words, I’ll have stuff some way before other people, especially of my own generation (late baby-boomer).

But if I’m going to be charged more than $10 to rent a book on a machine with a limited life-span, I – and I suspect quite a few other people – will stick to spending our $5-10 on real books that are ours forever with no in-built obsolescence.

I guess I am one of the few people who NEVER buy a book in hardcover. Even if I love the author. Before, I always just waited for the softcover or hoped the library got it. For me the E/reader e/book scheme is great because the “paperback” price for an ebook appears to be at least 20-25% off the retail price I would pay in a bookstore. I own the nook and so far have purchased all books in the last 3 months on it for a total of 112 books all at 20-25% off. I am very happy with that price and think it is fair.

I’m with helen. With the exception of Mystery Guild book club titles of a few select authors, I never buy hard cover. Can’t afford it. And I confess that one of my publishers targets the library market and releases books ONLY in hard cover. But they don’t fit my budget. I’m fine with people requesting their library carry it.

I also write for several publishers for whom e-publication is their primary medium. Depending on where you shop, you can own those books. And those publishers pay authors a decent royalty.

I think if the used book store trade is destroyed and libraries, which we pay to use via taxes, charges extra for books it will further destroy the publishing industry. New authors will never be discovered because people will not want to pay $8+ to try a new author who they may or may not like. Plus the fact that it’s the only way to get an author’s backlist many times.

Avid readers will no longer buy books if they don’t have room for keeping them (if I had kept everything I’ve read thus far, I would have to rent a storage unit).

I work for a UBS but I buy 97% of my titles new (and we do offer new books as well).

I have E-books which I read on my laptop when I can (the white background bothers my eyes) and I refuse to pay the exorbitant price for a reader which only uses some formats. And I would never consider paying as much as or more than print price for an E-book.

I wanted to add that used book stores are no different than used car dealers or consignment shops. They were paid on the initial sale, why should they receive more money when it’s already been purchased? Chevy doesn’t get anything from a used car dealer when a car is resold.

The publisher put out x amount of copies of the book. Excluding unsold copies that were returned and ones that may have been shoplifted, they have been paid for their product.

I’ve had a Sony ebook reader for 3 years (updated from the 500 to the 505 a little over a year ago). When I first got it, I still bought bound books that weren’t available as ebooks. Now, I buy ebooks exclusively; both because I prefer reading on my reader, and I don’t have the room to store a lot of bound books.

All the books I’ve bought have been purchased at a discount except some mmpb published by St. Martin’s Press that were sold at tpb price. When I first saw ebooks being sold for more than their bound copy price, I went to Borders rather than spend more. However, within the last year, I’ve purchased the few books (approx. three) that were priced higher, because I wanted to send a message with my dollars that I was committed to buying ebooks. I even wrote Sony and MacMillan (of whom SMP is an imprint) to tell them that.

Those were just a few books though. I cannot afford to buy the majority of NY pubbed books at twice the cost. However, I will still buy ebooks – NY pubbed and web pubbed; I’ll just be buying significantly less.

Generally when people say they’ll be shopping elsewhere or buying less, they’re full of shit. But this time I might mean it. I’ve gone on a crazy buying binge at FW in the past months and my to-read shelf is at 130.

That should hold me for a long time, maybe until after pubs realize the agency model is moronic.

@Lynn:Far as I know (and I’ve managed two Fictionwise publisher contracts to date) the publisher sets the book price on Fictionwise. To change the price we just make an adjustment on the control panel and it usually shows within a day. What we don’t have control over is the discounts they offer. I can only assume it’s the same for all publishers who sell there.

Like @Ridley, I’m not impressed with the iPad either. Ball & chained to Apple’s store, Apple’s standards, and Apple’s software. iPad will be hackable five minutes after release anyway.

We own a kindle (deeply discounted via Mr. Xandra’s work) and I’m still nervous about buying kindle editions because I like having my epubs, my pdfs, and my pdbs backed up on my house cloud, where I know they’re mine. In the meantime, I’ll keep using Calibre and other conversion programs, and rewarding multi-format publishers with my patronage.

The Fictionwise Buywise Club can no longer be renewed and new subscriptions are no longer available. All existing Buywise Club members may continue to use their benefits until their memberships expire.

– The Fictionwise Team

That’s going to hurt. Between their club discount and micropay, I often got the best deals there.

Real books that are yours forever? I don’t know about you but I’ve literally had books fall to pieces on me or get damaged in some other way. Books that I’ve had to replace. So, it’s really not true that if you get a “real” book it’s yours forever as opposed to a digital version. I’ve got my digital versions saved in at least two places. Can’t really do that with my “real” books…unless I photocopy them.

Am I the only one who wonders why I should pay the same price for my kindle version as the paperback or hardcover book costs? Aren’t most books written electronic form? If the book is not acutally published on paper why should I pay the paper price? If I subtract the cost of the actual publishing costs, and even if you add in the digital formating costs, the price should be less than a paperback and hardcover. I guess I won’t be purchasing many more ebooks. It dosn’t make sense.

Just checked Robert Jordan’s titles on Amazon and it appears they have the new pricing. These are some of the books Macmillan (Tor) was charging $14-$15 list under the old pricing, they are now $7-$8 list which brings them in line with the print versions finally. It’d be nice to see them go one step further and drop the list on ebooks to a buck or two less than the paper, but it’s better than it was.
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I did notice that these books are still being discounted from list by Amazon. I was under the impression that that was a no go under the new model. Maybe they’re discounting them for the one day?

[…] But you know, this really isn’t Agency pricing. As noted by the Smashwords pricing outline, Apple is determining a price range for books so publishers aren’t truly able to set their prices independently. What publishers are doing is engaging in retail price maintenance, forcing all retailers to price the books exactly the same. Further, this won’t increase new entrants into the market because small competitors can’t afford host/serve the books themselves which is what they would have to do now that the “Agency 5″ are requiring the digital distributor and the retailer to share in a 30% commission. […]

[…] It’s all Apple’s fault.Â According to D.A., they are determining a price range for books so publishers aren't truly able to set their prices independently. What publishers are doing is engaging in retail price maintenance, forcing all retailers to price the books exactly the same. Further, this won't increase new entrants into the market because small competitors can't afford host/serve the books themselves which is what they would have to do now that the â€œAgency 5â€³ are requiring the digital distributor and the retailer to share in a 30% commission. […]

[…] off the top of my head what titles are releasing in April. Â As I said on Sunday, this is going to get uglier before it gets better. Share Ebooks Amazon, Book Pricing, ebook pricing, Kindle, Penguin REVIEW: This […]

[…] has been discussing the agency program many of the big publishers have signed up for, including the impending price battle, what’s going to happen to discounting, the end of loyalty programs, and the disappearance of […]

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